Bullbear Buffett Stock Investing Notes

Keep INVESTING Simple and Safe (KISS)
****Investment Philosophy, Strategy and various Valuation Methods****
The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Friday, 9 December 2016

A current account deficit occurs when a country spends more money on the goods and services it imports than it receives for the goods and services it exports. In other words, more money is leaving the country than flowing into it. The current account consists of money received and paid out for goods, services, investments, salaries, pension payments to foreign workers and money workers send to family members abroad.

When a country has a current account deficit, it must make up for the shortfall. A current account deficit is financed from the capital account and the financial account, which contain the money a country sends out and brings in from buying and selling tangible assets and foreign currency and from foreign direct investment.

Current account deficits are common in highly developed countries and in highly underdeveloped countries. Countries with emerging markets typically have current account surpluses.

Whether a current account deficit is bad or not depends on why it exists and how it is being paid for. A current account deficit might exist because a country is importing the inputs for goods it will export later; it may then create a current account surplus. It can also mean that foreign investors see the country as a desirable place to invest. While the domestic country will pay returns to those foreign investors, the additional capital can help expand the domestic economy.

On the other hand, a country could be overspending on expensive exports when it would be better off increasing domestic production. Also, a longstanding current account deficit could saddle future generations with debt and interest payments.A current account deficit also puts a country at risk of facing financial or political pressure from foreign suppliers.

The balance of payments (BOP) is the place where countries record their monetary transactions with the rest of the world. Transactions are either marked as a credit or a debit. Within the BOP there are three separate categories under which different transactions are categorized:

the current account,

the capital account and

the financial account.

In the current account, goods, services, income and current transfers are recorded.

In the capital account, physical assets such as a building or a factory are recorded.

And in the financial account, assets pertaining to international monetary flows of, for example, business or portfolio investments, are noted.

In this article, we will focus on analyzing the current account and how it reflects an economy's overall position.

The Current Account

The balance of the current account tells us if a country has a deficit or a surplus.

If there is a deficit, does that mean the economy is weak?

Does a surplus automatically mean that the economy is strong? Not necessarily.

But to understand the significance of this part of the BOP, we should start by looking at the components of the current account:

goods,

services,

income and

current transfers.

1. Goods - These are movable and physical in nature, and in order for a transaction to be recorded under "goods", a change of ownership from/to a resident (of the local country) to/from a non-resident (in a foreign country) has to take place. Movable goods include general merchandise, goods used for processing other goods, and non-monetary gold. An export is marked as a credit (money coming in) and an import is noted as a debit (money going out).

2. Services - These transactions result from an intangible action such as transportation, business services, tourism, royalties or licensing. If money is being paid for a service it is recorded like an import (a debit), and if money is received it is recorded like an export (credit).

3. Income - Income is money going in (credit) or out (debit) of a country from salaries, portfolio investments (in the form of dividends, for example), direct investments or any other type of investment. Together, goods, services and income provide an economy with fuel to function. This means that items under these categories are actual resources that are transferred to and from a country for economic production.

4. Current Transfers - Current transfers are unilateral transfers with nothing received in return. These include workers' remittances, donations, aids and grants, official assistance and pensions. Due to their nature, current transfers are not considered real resources that affect economic production.

Now that we have covered the four basic components, we need to look at the mathematical equation that allows us to determine whether the current account is in deficit or surplus (whether it has more credit or debit). This will help us understand where any discrepancies may stem from, and how resources may be restructured in order to allow for a better functioning economy.

The following variables go into the calculation of the current account balance (CAB):
X = Exports of goods and services
M = Imports of goods and services
NY = Net income abroad
NCT = Net current transfers

The formula is:
CAB = X - M + NY + NCT

What Does It Tell Us?

Theoretically, the balance should be zero, but in the real world this is improbable, so if the current account has a surplus or a deficit, this tells us something about the government and state of the economy in question, both on its own and in comparison to other world markets.

A surplus is indicative of an economy that is a net creditor to the rest of the world. It shows how much a country is saving as opposed to investing. What this means is that the country is providing an abundance of resources to other economies, and is owed money in return. By providing these resources abroad, a country with a CAB surplus gives other economies the chance to increase their productivity while running a deficit. This is referred to as financing a deficit.

A deficit reflects government and an economy that is a net debtor to the rest of the world. It is investing more than it is saving and is using resources from other economies to meet its domestic consumption and investment requirements. For example, let us say an economy decides that it needs to invest for the future (to receive investment income in the long run), so instead of saving, it sends the money abroad into an investment project. This would be marked as a debit in the financial account of the balance of payments at that period of time, but when future returns are made, they would be entered as investment income (a credit) in the current account under the income section.

A current account deficit is usually accompanied by depletion in foreign-exchange assets because those reserves would be used for investment abroad. The deficit could also signify increased foreign investment in the local market, in which case the local economy is liable to pay the foreign economy investment income in the future.

It is important to understand from where a deficit or a surplus is stemming because sometimes looking at the current account as a whole could be misleading.

Analyzing the Current Account

Exports imply demand for a local product while imports point to a need for supplies to meet local production requirements. An export is a credit to a local economy while an import is a debit, an import means that the local economy is liable to pay a foreign economy. Therefore a deficit between exports and imports (goods and services combined) - otherwise known as a balance of trade deficit (more imports than exports) - could mean that the country is importing more in order to increase its productivity and eventually churn out more exports. This in turn could ultimately finance and alleviate the deficit.

A deficit could also stem from a rise in investments from abroad and increased obligations by the local economy to pay investment income (a debit under income in the current account). Investments from abroad usually have a positive effect on the local economy because, if used wisely, they provide for increased market value and production for that economy in the future. This can allow the local economy eventually to increase exports and, again, reverse its deficit.

So, a deficit is not necessarily a bad thing for an economy, especially for an economy in the developing stages or under reform: an economy sometimes has to spend money to make money. To run a deficit intentionally, however, an economy must be prepared to finance this deficit through a combination of means that will help reduce external liabilities and increase credits from abroad. For example, a current account deficit that is financed by short-term portfolio investment or borrowing is likely more risky. This is because a sudden failure in an emerging capital market or an unexpected suspension of foreign government assistance, perhaps due to political tensions, will result in an immediate cessation of credit in the current account.

The Bottom Line

The volume of a country's current account is a good sign of economic activity. By scrutinizing the four components of it, we can get a clear picture of the extent of activity of a country's industries, capital market, services and the money entering the country from other governments or through remittances. However, depending on the nation's stage of economic growth, its goals, and of course the implementation of its economic program, the state of the current account is relative to the characteristics of the country in question. But when analyzing a current account deficit or surplus, it is vital to know what is fueling the extra credit or debit and what is being done to counter the effects (a surplus financed by a donation may not be the most prudent way to run an economy). On a separate note, the current account also highlights what is traded with other countries, and it is a good reflection of each nation's comparative advantage in the global economy.

By Reem Heakal

Read more: Exploring The Current Account In The Balance Of Payments | Investopedia http://www.investopedia.com/articles/03/061803.asp#ixzz4SJNYJxla
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Wednesday, 7 December 2016

The size of the magnified return depends on both the price behaviour of the security and the amount of margin used.

2. Another more modest benefit of margin trading is that it allows for greater diversification of security holdings because investors can spread their limited capital over a larger number of investments.

The Disadvantages of Margin Trading

1. The major disadvantages of margin trading, of course, is the potential for magnified losses if the price of the security falls.

2. Another disadvantage is the cost of the margin loans themselves.

A margin loan is the official vehicle through which the borrowed funds are made available in a margin transaction.

All margin loans are made at a stated interest rate, which depends on prevailing market rates and the amount of money being borrowed.

This rate is usually 1% to 3% above the prime rate - the interest rate charged to creditworthy business borrowers.

Value Vs Growth

What drives the return of your stock investment, Growth or Value?

“In our opinion, the two approaches (value and growth) are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive…In addition, we think the very term “value investing” is redundant. What is “investing” if it is not the act of seeking value at least sufficient to justify the amount paid?” Warren Buffett Letters to investor, 1992.

KYY Investing Guide lines - Koon Yew Yin

Since my retirement as a founder director of IJM Corporation Bhd about 30 years ago, I have been investing in our local and Hong Kong stock markets. I also have read books to learn the methods practiced by legionary experts such as Peter Lynch, Benjamin Graham and many others.

At the beginning I made some mistakes and I learned from my own mistakes to improve my skill.

Now I am able to write down some simply guide lines to help investors make more money. You do not need a higher tertiary education to make money.

1 KYY golden rule for stock selection: Before you buy any share, you must make sure that the company can make more profit in the current year than last year by looking at its profit for the last 2 quarters and the projected P/E ratio is less than 10. If it has very good profit growth prospect, you may buy it at higher P/E ratio.

2 Up and down trend charts: You don’t have to be an expert in chart. All you need to know is what is up trend and down trend. Never buy down trending stocks even if they are selling below NTA because you don’t know when the price will go higher than your purchase price for you to sell to make money. For example some of the property companies are selling below their NTA. As you know there is an oversupply of properties in every town and city in Malaysia. If you buy property shares, you have to wait a few years before the property market turns around.

3 Buy up trending stocks provided they have good profit growth prospect and selling at low P/E ratio. The advantage is that after your purchase, you can see the price continues to go up. But you must remember that no share can continue to go up for whatever reason. You must sell to take profit.

4 Cut loss will limit your losses: After you have bought a share and the price did not go up as you expected, you must cut loss when the price drops more than 10% of your purchase price.

5 Control your emotion of fear, greed, ego and over confidence to think logically is the key for successful investing. Most people cannot control their emotion to think logically. If everyone can think logically, all the shares would be fully valued and there would not be any underpriced share for sale. That is not the case. If you can control your emotion you would know when to buy and when to sell to make money.

6 You must develop some business sense. Quite often you can see share prices of really good companies remain flat or keep dropping for no reasons. If have some business sense, you dare to buy. But if you do not understand business, you would miss the chance to make money.

7 To maximize profit, you must have patience. Every day you can see how share prices fluctuate. The day’s high and low can be quite a wide difference. If you have patience, you can buy at the lowest price or sell at the highest price of the day.

8 You must own a maximum of 8 stocks so that you can keep track of the companies’ progress. All businesses have different challenges and obstacles at different time to overcome. If you can keep track of them, you know when to buy or sell to make more profit.

9 You should use margin loan to increase your profit provided you really know all the above guide lines. The current interest rate is 4.8% pa. You can easily make more than the interest rate to increase your profit.

10 Share investing is not an easy venture. If you cannot afford to lose, don’t try. There are more losers than winners in the stock market. If you have not been successful after a few years, you must stop. Otherwise you and your family will suffer.

Tuesday, 29 November 2016

Intelligent investor: this is an investor "endowed with the capacity for knowledge and understanding."

Intelligent here is not to be taken to mean "smart" or "shrewd" or gifted with unusual foresight or insight.

The intelligence here presupposed is a trait more of the character than of the brain.

Defensive investor

For example, a widow who must live on the money left her.

Her chief emphasis will be on the avoidance of any serious mistakes or losses, in the sense of conserving capital.

Her second aim will be freedom from effort, annoyance and the need for frequent decisions.

A woman in this position, with substantial funds, will not be satisfied to leave her financial affairs entirely in the hands of others.

She will want to understand - at least in general terms - what is being done with her money and why.

She will probably want to participate to the extent of approving the broad policy of investment, of keeping track of its results and of judging independently whether or not she is being competently advised.

This will be equally true of men who wish to throw the major burden of their investment operations on the shoulders of others.

For all these defensive investors, intelligent action will mean largely the exercise of firmness in the application of relatively simple principles of sound procedure.

Enterprising investor

These are notdistinguished from the others by their willingness to take risks - for in that case they should be called speculators.

Their determining trait is rather their willingness to devote time and care to the selection of sound and attractive investments.

It is not suggested that the enterprising investor must be a fully-trained expert in the field.

He may derive his information and ideas from others, particularly from security analysts.

But the decisions will be his own and in the last reckoning he must rely upon his own understanding and judgment.

The first rule of intelligent action by the enterprising investor must be that he will never embark on a security purchase which he does not fully comprehend and which he cannot justify by reference to the results of his personal study or experience.

Two pervasive “mega volatilities” are set to throw emerging market government finances into cyclical disarray for years to come, global economics expert Nenad Pacek has told delegates at the CIPFA international seminar in Luxembourg.

Pacek, president of Global Success Advisors GmhB and founder of the CEEMEA Business Group, said the unchecked, speculative buying and selling done by the world’s financial institutions has huge implications for public accounts.

Since the financial crisis, he continued, financial institutions have started “two major parties” around the world in pursuit of the biggest returns.

The first was heavy investment in high-yield government bonds in emerging markets, leading to “unprecedented inflows of freshly printed money [generated by quantitative easing in major economies]” from the advanced to the developing world starting in 2010.

Suddenly, he said, “everyone feels richer”: the value of emerging market currencies inflates, and governments have easy access to finance.

But this would not endure. He pointed to 2013/14, when governments began thinking about stopping their money printing programmes. Pacek said “panic set in” and funds started pulling their money out of emerging markets.

Investors either no longer wanted to buy government bonds or demanded such high premiums that no governments could afford it. Easy access to finance was over, currencies deflated and there were “mega, mega outflows of capital”, making it very difficult to run economic policy successfully.

“We are going through these waves because nobody is controlling any capital inflows and outflows,” he highlighted, with only China maintaining restrictions on buying renminbi.

Pacek described it as a massive problem that “no one is debating” the issue.

Commodity futures are similarly problematic, he continued, dubbing them “nothing but a big gambling casino” run by the world’s financial institutions.

Futures are being “misused”, he said. Almost all – 97.3% – of futures transactions do not result in a trader taking physical possession of commodities. Less than 3% are linked to real-world demand.

Prices can rise and fall dramatically in a matter of a few weeks, “because it has nothing to do with physical supply and demand,” Pacek noted.

He called this a “disaster” for countries dependent on commodity exports, which suddenly find themselves in economic crisis and “suffering” because they have no money and having to borrow to pay for basic services.

Pacek pointed to the recent, dramatic downturns in economies like Brazil, Russia and South Africa.

“We will have these two mega volatilities still happening in the future,” he said. “Inflows of cash going into emerging markets on the wave of enthusiasm, and then leaving in panic.

“What that means for the availability of government finances is absolutely critical. During the good times, access to finance is good and cheap, and governments are able to do something. But many are not ready for what comes next, which is when the outflow happens.

“These two issues will be pervasive for many, many years to come and nothing will change that. That volatility will stay with us.”

Pacek also covered issues facing the developed world: namely, low growth in the eurozone, which only began its own quantitative easing programme in March 2015; and the impact of Donald Trump’s presidency in the US.

In the European economy, he said the European Central Bank’s programme of printing money to buy €80bn worth of bonds per month is having a positive impact.

As a result, after many years of “misguided austerity”, governments are able to breathe easier.

Across the Atlantic, he predicted that Trump’s policies, which include tax cuts and infrastructure spending, could deliver a short-term “growth injection” for the US.

KUALA LUMPUR: Permodalan Nasional Bhd (PNB), the country’s largest fund-management company which has a new team at the helm, has unveiled a six-year strategic plan to deliver sustainable, consistent and competitive returns to its unitholders.

PNB has set a target to increase its total assets under management to about RM350bil by 2022 from about RM259.49bil currently.

In a rare press briefing on its performance, PNB disclosed that was expecting a gross income of RM18.64bil and a net income of RM15.18bil with a return on assets of about 6.1%.

According to group chairman Tan Sri Abdul Wahid Omar, PNB has been able to deliver consistent returns to its unitholders, with over RM136bil having been paid out since its inception 38 years ago.

PNB is currently the market leader in the local unit trust industry, managing RM220bil in unit trust assets with 12.8 million accounts, representing over a 60% market share in terms of total fund value.

PNB also expects the dividend payout this year to be maintained, said Wahid as he unveiled PNB’s Strategic Plan 2017-2022 yesterday.

Meanwhile, PNB president and group CEO Datuk Abdul Rahman Ahmad said PNB recognised the challenges ahead in the period of global uncertainty, given the flat global economic growth and low interest-rate environment.

“This is exacerbated further by the negative trend of the FBM KLCI for the past three consecutive years attributed by the weak shareholders’ return of large-cap Malaysian corporates over the period,” he added.

PNB is a major investor in Bursa Malaysia with investments of nearly RM170bil or 10% of the market capitalisation of the bourse.

Its strategic holdings are in Malayan Banking Bhd (Maybank), Sime Darby Bhd, UMW Holdings Bhd, S P Setia Bhd, Chemical Company of Malaysia Bhd and MNRB Holdings Bhd.It also has sizeable stakes of more than 10% in large caps such as Axiata Group Bhd, Tenaga Nasional Bhd, CIMB Group Holdings Bhd and Telekom Malaysia Bhd.

To counter the challenges ahead, Abdul Rahman said the PNB Strategic Plan 2017-2022 would chart the way forward for the group to deliver sustainable, consistent and market-leading returns.

However, he said that corporate Malaysia has to perform.

“Companies should not undertake mergers and acquisitions without enhancing shareholder value. Every single action that they take should create shareholder value,” he added.

Abdul Rahman said: “We have developed a clear strategic plan to address current and future challenges, thus ensuring PNB can sustain its performance for the next six years and beyond.”

He pointed out that PNB would continue to invest in high-performing Malaysian corporates.

“Our cash is sizeable and we will continue to invest whenever the opportunity arises, including in fixed income when the time is right.”

At the moment, out of PNB’s investment portfolio, the cash position is about 20% and fixed income is 4%.

A 20% cash holding is about RM50bil in terms of absolute amount.

Towards this end, Abdul Rahman said that it would be redeploying some assets to reduce its cash position when the opportunity arises.

“We think that while it is important to hold cash, RM50bil is a bit too much,” he said.

Wahid added that there were a lot of things that could be done and achieved with PNB’s existing strategic investments.

“We will work closely with the management and board of our strategic investment companies to see how we can further maximise returns and create more value for these companies,” said Wahid.

Recently, there was a news report of a break-up of Sime Darby, the conglomerate in which PNB has close to a 55% controlling stake.

Spculation has been rife that both Wahid and Abdul Rahman were keen on seeing the board of Sime Darby come up with a plan to unlock value by having more individually listed entities as opposed to a single public-listed parent holding an array of different businesses.

On PNB’s cash position, Abdul Rahman said that the current cash position of 20% of total assets was definitely not optimal and that PNB would be looking to deploy those monies to work soon.

“We will source for new strategic investments and core portfolio companies. Private equity and fixed income will be another asset class that we are looking to increase exposure to,” said Wahid.

“For now, given the weak ringgit, we will not move into acquiring global assets.”

Abdul Rahman, meanwhile, is bullish on the positive growth of PNB’s funds, given the lows in the earnings cycle, historically low foreign ownership and the fact that “not often the KLCI underperforms for three consecutive years”.

KUALA LUMPUR: Petron Malaysia Refining & Marketing Bhd expects to see an increase in market share next year following aggressive business expansion strategy and new products introduction.

Head of retail business Faridah Ali said for the year to-date, Petron Malaysia had opened 13 new service stations, bringing the total to 570 stations nationwide, while 10 more were expected to be in operations by year-end.

Over the next two years, the group would see another 20 stations in operations, she told reporters after the launch of Petron’s new Turbo Diesel Euro 5 in Kuala Lumpur on Friday.

Petron Malaysia also announced its sponsorship of the 20th Rain Forest Challenge in Malaysia, an endurance race for 4x4 vehicles, at the event.

Faridah said Petron Malaysia’s market share was about 15% currently.

“Since we entered Malaysia four years ago, the company has built the brand from zero to a very reputable brand today and we are confident of growing it further,” she said.

On the new diesel, Faridah said currently, the product was only available at 14 Petron service stations in the Klang Valley and Johor.

“We are planning to expand its availability to 70 stations by year-end,” she added.

“We are confident this superior fuel will receive good response from consumers,” said Faridah, adding that Petron Malaysia would introduce more innovative products and services in the coming months. - Bernama

The Indian rupee ended at lowest level today since August 28, 2013. The Indian Rupee closed lower by 17 paise at 68.73/$ on Thursday.

The Indian rupee ended at its lowest level today since August 28, 2013. The rupee hit a record low of 68.86 per dollar on Thursday. The rupee crashed to nearly a 39-month low of 68.84 amid sustained foreign fund outflows and the greenback's surge in overseas markets.

The rupee breached the 68.80 mark as upbeat economic data strengthened the prospect for higher US interest rates, while the dollar's bull run continued as US bond yields hovered near multi-year highs.

The rupee has fallen against the dollar since Donald Trump won the presidential election in the US on November 9, 2016 from its 66.43 level, it reached the 68.8325 mark today.

On the global front, Federal Reserve chair Janet Yellen has announced that trump's election has done nothing to change the federal reserve's plans for a rate increase "relatively soon".A rate hike in US will lead to flow of money from emerging markets leaving their currencies and assets vulnerable to the negative risks.

Chinese Yuan is also sinking, with values tumbling to a record low of 6.9378 against US dollar at one point of time yesterday in the offshore markets. US dollar index will witness further gains, with values are expected to hit 105 in the coming weeks. Euro seems to be the most vulnerable, influenced by the uncertainty over Italian constitutional referendum in the first week of December.

The Indian Rupee closed lower by 17 paise at 68.73/$ on Thursday. The local unit hit a high of 68.57/$ and a low of 68.83/$ today.

The Reserve Bank of India’s (RBI) reference rate for the dollar stood at 68.65 while for the Euro it was 72.38. The RBI’s reference rate for the Yen stood at 60.90; reference rate for the Great Britain Pound (GBP) stood at 85.3600.

Thursday, 24 November 2016

IOI Corp's business profile stronger: Moody's BY RUPA DAMODARAN - 21 NOVEMBER 2016 KUALA LUMPUR: Felda Global Ventures Holdings Bhd may be the leader in the palm oil sector by size but IOI Corporation Bhd has a stronger business profile, says Moody's. It said IOI’s highly efficient upstream operations and integrated business model supports financial stability. “We believe an integrated company is less exposed to CPO price cyclicality and has more stable, albeit much lower profit margins. IOI's leverage ratios exhibit more stability, helped by resilient profit margins. "We expect Felda will maintain its production leadership position as Sime Darby's -- Malaysia's second-largest producer -- efforts to increase its CPO production through improving harvesting yields and productivity will likely be realised after 12 months," says Jacintha Poh, a Moody's Vice-President and Senior Analyst. Felda's annual crude palm oil (CPO) production was more than three million metric tons over its last three fiscal years, a lead of more than 500,000 MT over Sime Darby Berhad and more than four times the outputs of IOI and Genting Plantations. IOI's upstream operations are most efficient, with it consistently generating the highest fresh fruit bunch (FFB) yield among all four companies and in fiscal 2015, it achieved FFB yield of around 24 MT, versus Malaysia's industry average of around 18 MT-19 MT, added Poh. However, Moody's expects all four companies to generate lower FFB yields over the next 6 to 12 months due to poor weather conditions.

Tuesday, 22 November 2016

Ever wonder why your brokers profit and loss statements don’t always add up with your calculations? This normally due to the different methods of measuring overall portfolio returns.

In this article we are going to discuss two of the most commonly used methods which you can apply to your portfolio holdings, that of the money-weighted rate of return and that of the time weighted rate of return. Both methods are officially recognised by the CFA charter.

Let’s start with the money-weighted rate of return. This method takes into account all cash inflows and outflows of a portfolio and gives a defined measure of the internal rate of return (IRR). Any money added at the beginning of the account is considered a money inflow, and all money withdrawn from the account as well as the remaining balance at the end of the period are considered outflows.measuring overall portfolio returns

We can use a basic model to illustrate what this means. Suppose an investors buys 1000 stocks of Vertu Motors at the beginning of the period for 30p each. After 1 year the investor still likes the stock and decides to buy another 1000, only this time the price is now 35p a share. At the end of year two the investor sell all 2000 of the stocks for 45p a share, additionally at the end of each period Vertu paid a 3p dividend on each stock.measuring overall portfolio returns

So
At T=0 1000 shares were bought at 30p a share, meaning a cash inflow of +£300
At T=1 another 1000 shares were purchase for 35p a share, however a £30 dividend was also paid, meaning a cash inflow of (1000 x 0.35) – 30 = +£320
At T=2 they sold all their shares for 40p a share, and received a 3p dividend on the 2000 shares, meaning (2000 x 0.4) + (2000 x 0.03) = -£860
From this we have our cash flow time series
CF0 = +£300
CF1 = +£320
CF2 = -£860

The formula for working out the final return does look a little scary:
£300 + (£320/(1+r)) = (860/(1+r)²)
Fortunately we live in a world where there are plenty of online resources that will work this out for us. I personally like to use a financial calulator to input cash flows from a time series to work out the IRR. The answer to this formula is24.18% overall return

Now let’s see what happens when we use the time weighted rate of return to measure the portfolio’s actual return. Time weighted method has the benefit of measuring compound growth.

To do this we need to measure each individual holding periods growth. In the above example we have 2 holdings periods, year 1 and year 2.

Now that we have both these figures we need to find the total compounded annual growth rate that would have produced the total return that equals the return over the 2 holding periods. The formula for this is:
(1+ time-weighted rate of return)² = (1.2666)(1.2286)
We can rearrange this to get:
time-weighted rate of return = √((1.2666)(1.2286)) – 1
= 24.47% overall return
As we can see both methods are considered correct, yet they yield different results. Although the difference is negligible, this was only demonstrated across a small sample portfolio. The larger the cash flows, the wider the differences in measurements will be.

As a rule the time weighed rate of return is considered superior as money weighted returns can be influenced by timing. Measuring money weighted returns before a period of relatively high returns will return a higher figure and can therefore be ‘massaged’.

Sunday, 20 November 2016

Demonetization of Rs 500 and Rs 1,000 currency, a boon to common Indian citizen

The move to demonetize Rs 500 and Rs 1,000 currency tenders by the union government of India on last Tuesday, was a laudable and historic effort to clean up the decades long corruption and black money. As Indian citizens, we all should be proud of the fact that we elected a government, which was capable of taking such brave decision for the long-term betterment of the country’s economy. Nevertheless, there’s a high possibility that a certain percentage of people might interpret this decision negatively in view of the fact that short-lived challenges are to be seen, which might have a profound negative impact and dethrone ruling party in the coming elections; not everyone happens to be cognizant of the decision’s long-term benefits. If unaccounted or black money isn’t obliterated, it would make the rich richer and the poor poorer. According to SBI, “ Banks received deposits worth Rs 53,000 crore since the government put out of circulation, high-value banknotes in a bid to drain illegal wealth. Nearly 14 lakh crore are held in Rs 500 and Rs 1000 notes now – nearly 86% of the total value of currencies of all denominations in circulation” [1]. Ultimately, government will possess an adequate amount of money to invest in infrastructure, education, agriculture, and all other sectors to build India economically stronger.

How would we benefit from demonetization?
Above all, every honest taxpayer should hail this decision. In the present economical situation, black money has inflated prices in real estate, gold and a few other sectors, making it a challenge for a common Indian citizen to invest.However the government’s attempt to curb black money will significantly lower the prices in such sectors. According to Finance ministry’s report in 2012, “real-estate accounts for more than 50 per cent of the current black money market” [2]. Demonetization would not only repair internal economic issues, but also tackles funding to terrorism. Counterfeit money is one of the main sources of funding for activities related to terrorism [3]. Also, corrupted government officials and politicians who have earned in illegal ways will have no other option to put that money into usage.Why there is “hue and cry” in the society over demonetization?
As the saying goes “no pain no gain’”. In the same way short-term constraints will be associated with long-term benefits in this process, such as all of sudden endeavor to convert currency, limitation of new tenders throughout the network for a certain period of time. An Inspiration story of a taxi driver, who sacrificed his share of money for a passenger carrying only Rs 500 notes, has set an example for fellow citizens. Furthermore he said “Even if I earn a little less money, it’ll slightly difficult to manage but that’s the case with everyone. I’ll consider this as my contribution to the country’s growth” [4]. Addressing the nation, Prime Minister of India provided assurance to the citizens, he quoted, “I want to tell the people again and again that the government will do everything to protect the honest” [5].

Why shouldn't we deposit money given by others, even if a share is given?
Firstly, it is illegal. However, if we still wish to pursue this option, chances are high to wind up in a tax fraud situation. According to revenue secretary Hashmukh Adhia, “Penalty of 200 percent of the tax payable would be levied if the cash deposited in bank accounts doesn't match with income declared” [6]. Also, it is unethical to exploit economically challenged people for individual’s benefit. On the other hand, currently certain agencies exist in the society, which converts unaccounted money into white for a mere profit up to 30%; one such route being used by them is: depositing money in the name of farmers as agricultural income, which will be non-taxed in India.

What the government still needs to work on?
The introduction of Rs 2000 note has been controversial in consideration of government’s efforts to suppress black money by eliminating bigger denomination currency, what might be the strategy? It still seems to be a missing part in a puzzle. The present demonetization process has laid trap for smaller rats; it has potential to break all illegal transactions in real estate, gold, and a few other sectors where circulation of unaccounted money has reached saturation point. However the dinosaurs are safeguarding their money overseas; recovering it should be the primary focus of the government. According to Wikipedia, “In February 2012, the director of India’s Central Bureau of Investigation said that Indians have US$500 billion of illegal funds in foreign tax havens, more than any other country [7]. Moreover, certain percentage of unaccounted money stocked in the form of valuable commodities such as gold has been secured in the vaults by certain section of people.

Tuesday, 15 November 2016

BY BILQIS BAHARI - 15 NOVEMBER 2016 KUALA LUMPUR: Malaysia’s aerospace manufacturing sector is expected to see a 20 per cent rise in turnover this year, compared to last year's RM6.8 billion. "Industry players are bullish on the aero-manufacturing sector and we are hoping to see a double-digit increase this year," International Trade and Industry (MITI) Minister Datuk Seri Mustapa Mohamed said in a press conference during the National Aerospace Event here today. Malaysia is currently the single source of specific composites parts for Airbus SA and Boeing. Mustapa said more than 50 per cent of composite wing parts for the Airbus A320 and the Boeing B737 are supplied by Malaysia. Global aero-manufacturing companies which invest in Malaysia include Spirit AeroSystems, Safran Landing Systems and Honeywell Aerospace Avionics.

Weak ringgit to impact 5 sectors

Clearer picture: A money changer worker counts US dollar notes for a customer in Kuala Lumpur. CIMB Research expects the ringgit’s volatility to contrinue until there is greater clarity on the new US administration’s economic and trade policies

PETALING JAYA: Exporters are back on investors’ radars, following the recent steep decline in the value of the ringgit against the greenback after the United States presidential election last week.

However, there is no rush yet to pick up bargain stocks on Bursa Malaysia.

The FBM KLCI took another big hit yesterday after falling by more than 1% for the second consecutive day amid heavy foreign sell-off.

“Fundamentally, we think markets may be overreacting to the ‘Trump risk’ in the near term, as speculative positioning takes hold,” said CIMB Research in a note to clients

On the volatility of the ringgit, it expects the trend to remain until there is greater clarity on the new US administration’s economic and trade policies.

The ringgit strengthened marginally yesterday to 4.33 against the US dollar.

“AirAsia will be impacted by the weaker ringgit, although this is buffered to some extent by the low oil prices. About 60%-70% of AirAsia’s costs are US dollar-denominated,” it added.

On the contrary, although many research houses are bullish on the export counters to benefit from the weak ringgit, Hong Leong Investment Bank (HLIB) Research said that the sector is vulnerable from president-elect Trump’s anti-trade views.

“While the market may continue to react to the strong US dollar, we caution that export stocks may still be affected by Trump’s anti-trade sentiment.

“The technology sector is more vulnerable to any trade policy change compared to resource-based sectors,” it said.

HLIB Research said the strong US dollar would be positive for sectors such as rubber product manufacturers, the gaming industry as well as technology companies.

It is negative for sectors such as automotive, aviation, telecommunications, consumer and power.

While the cheaper ringgit does not necessarily translate to higher exports for Malaysian products, companies such as rubber glove makers, semiconductors and furniture-related companies are expected to benefit from the weaker ringgit, according to analysts.

“Naturally, beneficiaries of the strong US dollar are exporters and companies with significant US-dollar assets,” said UOB KayHian in a report yesterday.

The research house prefers the electric and electronic manufacturers such as Inari, VS Industry Bhd and EG Industries Bhd on the back of revenue growth and margin improvement as compared to exporters.

“We are less enthusiastic on the loftily-valued rubber glove manufacturers, as the supply-demand dynamics for nitrile glove remain unfavourable.

“Hence, continuing downward pressure on the US dollar pricing of nitrile gloves could mostly offset the positive US dollar effect,” it said.

UOB KayHian reckoned that the stronger ringgit would not have a huge impact on exporters compared to in 2015.

“Since a strong US dollar is now a consensus view (unlike in 2015), buyers have actively squeezed down the US dollar pricing on Malaysian exporters, which reduces the quantum of the exporters’ windfall margins and hence the exporters’ ability to positively surprise on earnings,” it said.

Ringgit more steady, but volatility to persist

Sunway University business school professor of economics Yeah Kim Leng(pic) said the spike showed that there was strong demand for hedging against expectations of a continued weakness in the ringgit, ahead of expectations of an increase in the US interest rate.

PETALING JAYA: The ringgit traded in calmer waters against the US dollar, with the difference in the price of the currency in the official and speculative markets narrowing.

But indications are that the volatility of the local unit will persist in the next few weeks, analysts said.

The ringgit appreciated by 0.26% to RM4.33 against the US dollar yesterday in the spot market.

The spread between the onshore US dollar-ringgit exchange rate and the rate offer in the offshore market, also known as the ringgit non-deliverable forward (NDF) market, also narrowed.

At the time of writing, the one-month US dollar-ringgit exchange rate in the NDF market, which is not recognised by Bank Negara and deemed as speculative, was trading at RM4.38, which is not far off the onshore rate of RM4.33.

“The ringgit appreciated against the US dollar as there was enough supply of the greenback in the system, unlike last Friday,” said a trader.

Last Friday, banks did not go into any US dollar-ringgit transactions upon the behest of Bank Negara, as the rates were too volatile for the local banking system to price the US dollar appropriately. On Sunday, Bank Negara assured that there would be adequate supply of the US dollar, which contributed largely to the calm trading environment yesterday.

However, the one-month forward yield of the US dollar-ringgit trade in the NDF market spiked up to 17% in early trade. The forward yield was closer to 10% after 5pm.

The forward yield indicates the level of interest by speculators taking an arbitrage position between the onshore and offshore US dollar-ringgit exchange rate. The yields are normally at about 3%.

Yesterday saw an abnormal spike in the one-month forward yield of the US dollar-ringgt trade in the NDF market.

Sunway University business school professor of economics Yeah Kim Leng said the spike showed that there was strong demand for hedging against expectations of a continued weakness in the ringgit, ahead of expectations of an increase in the US interest rate.

“There is a lot of speculation that the interest rate hike will come steeper and faster, given the new US president’s inclination towards greater fiscal spending to boost the economy and the corporate sector.

“Hence, what’s happening is an outflow of foreign funds from emerging markets back to the US by investors seeking higher returns there.”

Yeah said that until there is more clarity on what the new president’s exact policies are, there would be continued volatility across the markets.

Meanwhile, a senior technical analyst who tracks both the stock and currency markets told StarBiz that although the ringgit strengthened against the dollar, the charts indicate weakness of the local currency in the next few weeks.

According to the technicals, the US dollar/ringgit daily chart showed that the greenback had reached the overbought levels, suggesting that the ringgit may appreciate over the next few days.

On the stock market, he said the 14-day relative strength index was oversold, indicating that there could be a technical recovery in the short term.

“However, the upside potential is likely to be capped,” he said.

He added that important support was pegged at the 1,600-point psychological level, while the immediate resistance is expected at the 1,640-point barrier.

Another economist when contacted said that “what seems to be happening is that there is selling pressure on the FBM KLCI and bonds in the onshore market, as the prospect of higher US bond yields are weighing negatively on the emerging-market space such as Malaysia. That has added pressure on the ringgit.”

Traders have also taken cognisance of Bank Negara’s warning on Sunday that it would not tolerate any transactions that facilitated trade on the NDF market. The NDF, which is an instrument for investors to trade forward rates for the ringgit, is settled in US dollars and is not recognised by Bank Negara.

Meanwhile, CIMB Investment Bank Bhd said the ringgit could touch between RM4.50 and RM4.80 against the US dollar within the next three to six months premised on the lack of clarity of the new US administration’s policies.

“Since the election, the US yield curve has steepened to reflect the market’s expectation of an inflationary impact of (president-elect Donald) Trump’s campaign promises.

“This narrowed the premium of emerging-market yields over the US and resulted in the unwinding of carry trades funded in US dollar.

“The ringgit has fallen in line with this trend and the weakness was further compounded by the relatively high foreign holdings of Malaysian government bonds,” it said in a report yesterday.

According to MIDF Equities Research, foreign funds were net sellers on Bursa Malaysia in the week ended last Friday at RM800.4mil, although the amount was lower than the RM948.1mil offloaded in the previous week.

“Still, it was the seventh-highest weekly outflow this year, estimated based on transactions in the open market which excluded off-market deals,” it said in its report.

Value of an Asset

From The Essays of Warren Buffett: “In Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows—discounted at an appropriate interest rate—that can be expected to occur during the lifetime of the asset.”

Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.

Always buy a lot when the price is low.

Never buy when the stock is overpriced.

It is alright to buy when the selected stock is at a fair price.

Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.

Do not time the market for such or any stocks.

By keeping to the above strategy, the returns will be delivered through the growth of the company's business.

So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.

The downside risk is protected through only buying when the price is low or fairly priced.

Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.

Sell urgently when the company business fundamental has deteriorated irreversibly.

You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.

In conclusion, a critical key to successful investing is in your stock picking ability.

My Philosophy and Strategy

DOCUMENTRY- WARREN BUFFETT THE WORLDS GREATEST MONEY MAKER

Robert Kiyosaki: Rich Dad Poor Dad (Financial Education)

Robert Kiyosaki - Rich Dad Poor Dad

Peter Lynch

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.2. Never invest in any idea you can’t illustrate with a crayon.3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.5. Time is on your side when you own shares of superior companies.6. Owning stock is like having children. Don’t get involved with more than you can handle.7. When the insiders are buying, it’s a good sign.8. Unless you’re a short seller, it never pays to be pessimistic.9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Think of your physical, mental and social well-being. Money may not buy happiness.

What is Risk?

The major RISK facing you is the possibility of not reaching your long-term investment goal through the growth of your funds in real terms. And the greatest enemy of reaching those goals is INFLATION. Nothing is safe from inflation. Short-term price volatility is NOT risk for investors who have time horizons 5, 10, 15 or 30 years away. Volatility is the friend of the long term investor. The most important friends of your investment goal are COMPOUNDING and TIME.

Life Cycle of A Successful Company

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:- fixed assets such as equipment, property, or industrial buildings- fixing problems with an asset- preparing an asset to be used in business- restoring property- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

The best stock investment strategy

Keep it simple. Keep it safe (make money with less risk taking). You don't need to pick the best stock or even the best stock funds to do well, if you have an investment strategy that keeps you out of trouble.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

Visualization Video for a New Life

All equity security investments present a risk of loss of capital

Investment performance is not guaranteed and future returns may differ from past returns. As investment conditions change over time, past returns should not be used to predict future returns. The results of your investing will be affected by a number of factors, including the performance of the investment markets in which you invest.

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Sell the losers, let the winners run.

Losers refer NOT to those stocks with the depressed prices but to those whose revenues and earnings aren't capable of growing adequately. Weed out these losers and reinvest the cash into other stocks with better revenues and earnings potential for higher returns.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.• A balance sheet with less debt than other companies in its particular industry.• A P/E ratio no higher than average.• A dividend yield that suits your particular needs.• A below-average dividend pay-out ratio.• A history of earnings and dividends not pockmarked by erratic ups and downs.• Companies whose ROE is 15 or better.• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments.If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

Market Fluctuations of Investor's Portfolio

Note carefully what Graham is saying here. It is not just possible, but probable, that most of the stocks you own will gain at least 50% from their lowest price and lose at least 33%("equivalent one-third") from their highest price -regardless of which stocks you own or whether the market as a whole goes up or down.If you can't live with that - or you think your portfolio is somehow magically exempt from it - then you are not yet entitled to call yourself an investor.